Raising S$86.8mil through a private placement. Cache Logistics Trust announced the close of a private placement of 70mil new units at an issue price of S$1.24 per new unit.Net proceeds will amount to approximately S$84.2mil. Funds raised from the private placement will be utilised to finance the acquisition of Precise Two, a fully ramp‐up warehouse that is valued at approx. S$55.2mil.

Opportunistically leveraging on its low cost of equity. We are not surprised that Cache has opted to tap on the equity market to finance its proposed acquisition. Putting it in perspective, Cache has enjoyed a remarkable run‐up in itsshare price in recent months and is currently trading at around 40% premiumto its book value ‐ one of the highest among S‐REITs. Enjoying a relatively low cost of equity, Cache's decision to raise equity proceedsis clearly a strategic step.

Acquisition will be DPU accretive despite being fully equity‐financed. Due to its relatively shorter land lease tenure of 21 years, Precise Two has an attractive net property income yield of 8.7%. Thus, while the acquisition is fully equity‐funded, it is nonetheless accretive to Cache's overall distribution yield. We are currently projecting a forward dividend yield of between 6.3‐6.8% in 2013‐14.

Enhancing its financial flexibility. Cache's move to raise equity proceeds considerably strengthens its financial position as well. Cache's aggregate leverage will decrease from 31.7% to an estimated 30.1% at end‐Q113. This represents an additional debt headroom of S$77.2mil and S$169.3mil assuming a target aggregate leverage ratio of 35% and 40% respectively. Moreover, approx. S$26.9mil out of the S$86.8mil raised will be set aside for future acquisitions or potential deleveraging,further bolstering its financial muscle.

Close to being fully valued. Cache's price‐to‐book ratio of 1.4 singles it out as one of the most expensive S‐REITs currently (S‐REITs have an average P/B of 1.15). While Cache could certainly command a slight premium to its S‐REIT peers due to its earnings resilience and visibility of income stream, we believe that Cache's growth prospects are already fully priced in. Reiterate HOLD with FV of S$1.335.

Source: AmFraser